The price on a heating oil quote is the end of a long chain. By the time 1,000 litres of kerosene reach your tank, the figure has been shaped by global crude markets, refinery economics, the exchange rate, tax and the cost of running a tanker down your lane. Understanding each link makes it much easier to judge whether a quote is fair and when to buy.
1. Crude oil and refined product markets
Heating oil is a middle distillate, refined from the same part of the crude barrel as diesel and jet fuel. Its wholesale value follows the international market for these products rather than crude alone. When crude rises, distillates usually follow within days, but the gap between the two (the "crack spread") can widen sharply if refineries go offline or diesel demand surges.
Our hourly estimate tracks the New York heating oil futures contract, a widely traded benchmark for distillate prices. European gasoil prices move very closely with it, which makes it a practical, freely available guide to the direction of UK wholesale costs.
2. The pound against the dollar
Oil products are priced internationally in US dollars. If sterling weakens, UK importers pay more for the same cargo even when the dollar price is unchanged. A 5% fall in GBP/USD adds 5% to the sterling wholesale cost — several pence per litre at typical price levels, which is why we fold the live exchange rate into every estimate.
3. Seasonal demand
Demand from oil-heated homes rises steeply from October to February. Distributors get busier, delivery slots lengthen and margins tend to firm up. Cold snaps cause short, sharp spikes as many households order at once. Summer is usually the quietest period, although a global market rally can outweigh the seasonal effect.
4. Distribution and delivery costs
The retail margin covers tanker drivers, fuel for the trucks, depot storage, insurance and administration. It varies with how remote you are, how much you order and how easy your property is to reach. That is why a 500 litre order typically costs several pence more per litre than 2,000 litres, and why the Highlands and Islands pay noticeably more than the Humber.
5. Tax
Kerosene used for home heating carries no fuel duty, and domestic deliveries of up to 2,300 litres attract VAT at the reduced rate of 5%. Gas oil (35-second oil) carries a rebated duty rate, so it is normally a little dearer than kerosene. Commercial customers may pay VAT at the standard rate.
Putting it together
| Component | Changes | Typical influence |
|---|---|---|
| Wholesale distillate price | Every trading minute | Largest share of the price |
| GBP/USD exchange rate | Every trading minute | A few pence per litre |
| Distributor margin | Weekly / seasonally | Roughly 7–15p per litre |
| Order size & location | Per order | From −2p to +8p per litre |
| VAT | Rarely | 5% for domestic orders |
You cannot control the global market, but you can control timing, order size and how many quotes you collect. Our guide to timing your order covers that in more detail, and the methodology page explains exactly how we turn these inputs into an hourly estimate.